- The portion of buy orders slid from 60 to 56%
- 63% of traders are now long the Pound
- Main resistance is the monthly R1 at 1.4325
- The nearest support are the monthly PP, the weekly S1 and the 20-day SMA around 1.4170
- 54% of traders reckon GBP/USD will be at 1.44 or lower in three months
- Upcoming events: FOMC Member Bullard Speech, US New Home Sales, US Crude Oil Inventories, UK Retail Sales, US Durable and Core Durable Goods Orders, US Jobless Claims
The British currency declined against all of other major peers on Tuesday, amid the terrorist attacks in Brussels bringing more fear of a ‘Brexit'. The largest losses were registered against the commodity-based currencies and the US Dollar. The Pound dropped 1.68% versus the Aussie, 1.51% against the Loonie, 1.00% against the Kiwi, while the Cable edged 1.12% lower. Against the remaining major currencies the Sterling dropped less than 1.00%, namely 0.90% versus the Euro, 0.83% against the Swissie and 0.75% against the JapaneseYen.
British inflation climbed less than expected last month, extending the period the cost of living in the UK has been below the Bank of England's 2% target to 26 months. Prices rose 0.3% from a year earlier, according to the Office for National Statistics. Economists, however, had expected a 0.4% gain in February. Inflation has not been above 0.3% since December 2014 and last hit the central bank's target in December 2013. Most analysts expect inflation to stay around the mark for most of the spring, before gradually moving towards the end of the year to about 1%. The Office for Budget Responsibility now predicts the consumer price index to climb to 0.7% at year-end, compared with 1% estimated earlier. The OBR then predicts inflation to edge higher to an average of 1.6% in 2017. Meanwhile, core inflation, which excludes volatile food and fuel costs, came in line with expectations at 1.2%.
A separate report showed UK public sector net borrowing excluding banks rose to 7.1 billion pounds in February, more than expected. Overall in the fiscal year from April through February net borrowing dropped to 70.7 billion pounds. The OBR predicts net borrowing this year to come in at 72.2 billion pounds, slightly less than estimated in November.
US New Home Sales
This Wednesday is also rather quiet in terms of fundamental data and economic data releases. The only relevant event today is the US New Home Sales. The number of New Home Sales, released by the US Census Bureau, is an important measure of housing market conditions. House buyers spend money on furnishing and financing their homes so as a result the demand for goods, services and the employees is stimulated. According to the forecast, a slight improvement is expected in the figure.
GBP/USD struggles to maintain trade above 1.42
Upon retaking the 1.44 psychological level on Tuesday, the Pound suddenly made a U-turn and slumped to 1.42, amid the events in Brussels. The Sterling now faces a support cluster around 1.4170, represented by the 20-day SMA, the weekly S1 and the monthly PP. Technically, we should see the GBP/USD currency pair undergo a correction today and attempt to reach the 1.43 mark again, but there is still sufficient room to a decline towards the immediate support cluster's last level—the monthly PP at 1.4141. This PP held the Sterling from edging lower against the Buck since the beginning of the month and is likely to keep the Cable afloat if bears take over the market.
Daily chart
On the hourly chart the British currency is on the edge of reaching the possible up-trend at 1.4150 today, which is expected to reverse the current bearish momentum. A rebound would provide the required trend-line confirmation and would imply that the Cable is still on its way to reaching the 1.4650 mark, namely the resistance line of a greater pattern.
Hourly chart
Sentiment turns bearish
Bullish sentiment grew stronger, as 63% of traders are now long the Pound (previously 58%). The portion of buy orders slid from 60 to 56%.
A similar but to a lesser extent attitude is observed at OANDA, where 55% of open positions are long, four percentage points more than yesterday. Meanwhile, the sentiment at Saxo Bank shifted to the bullish side, being that 53% of all open positions are now long and the remaining 47% are short.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.44 in three months
The majority of traders (54%) believe the British currency is to cost 1.44 or less dollars after a three-month period. The most popular price interval was selected by 17% of the voters, namely the 1.34-1.36 one, while the second most popular choice implies that the Pound is to cost between either between 1.46 and 1.48 dollar in three months, three chosen by 13% of the surveyed. At the same time, the mean forecast for June 23 is 1.4275.
Community members do not expect any surprises from the currency pair this week, as according to the Dukascopy survey the Sterling might end the week at 1.43, slightly changed from the last week's close price. The majority of those polled (62%) share a bearish outlook for the British currency.
According to nuonrg, a member of the Dukascopy Community, the GBP/USD has the same story as the EUR/USD. "The pair showed much strength during the last week. The downtrend seems to be broken for now while momentum is shifted and needs to be confirmed," he commented.
However, RacerX believes that the Pound could edge lower against the US currency, as "with the possibility of a Brexit still looming on the horizon uncertainty about GBP may cause the market to favor the bearish potential." He also added that "the recent lackluster numbers in addition to the FOMC announcement still point toward positive developments in the US economy."